The GBP/USD pair initially rallied during the session on Monday, but could not hold gains in a light volume session for the Christmas Eve holiday. The pair simply could not hold above the 1.62 level, and as a result fell back down in order to challenge the 1.61 handle and formed a shooting star.
If you been reading our articles, you know that I am very bullish of this pair overall. However, it does appear that a pullback is currently being worked on, and I believe that this is going to be healthy in the long run. After all, one of the things that are driving Dollar strength in general is the so-called "fiscal cliff" talks going on in Washington DC. People are buying US dollars in a "safe haven bid" around the world. You are seeing typical risk assets selling off, including gold and silver, let alone currencies.
1.58
If you remember correctly, there was a time when we were consolidating in an ascending triangle over the summer. The 1.58 handle was the top of that triangle, and therefore significant resistance. We have pullback after hitting the initial target of 1.63 as recommended by the ascending triangle. We tested the 1.58 level for support, and as a result we bounce back up to the 1.63 level. This isn't that uncommon, as the market will struggle to get above the initial target sometimes. After all, it is resistance and should be thought of as such.
Looking forward, I think that a break of the 1.63 level is one of the major possible signals that we will get over the next couple of months. This signal would have me looking for the 1.70 handle sometime in 2013. I firmly expect to see this, and as a result still have a bullish bias in this pair. Remember, the Federal Reserve has just stated that it was going to expand its quantitative easing measures for the foreseeable future, while the Bank of England seems to be fairly comfortable with where it sitting right now.
With this being said, I believe that we will see further weakness, but should start to see serious support at the 1.60 level. At that area, I would be more than willing to buy supportive candles in order to give the market a chance to continue higher and finally break above the 1.63 handle.